The only thing that could make Google crash and burn (updated)

By Cody Willard

Google is one of the companies in my report, 14 Stocks That Should Double in 2011 (visit http://Tradesfor2011.com to get the report for $39) and its also featured in my other recent report, 50 Stocks for the App Revolution (visit http://AppRevolutionStocks.com to get the report for $79), which includes a handful names I think can go up 500-1000% in coming years.

A preacher asked me over a steak dinner at The Texas Club in Ruidoso, NM a great question — what’s the single biggest threat to Google in the long run.

I had an answer ready for him.

The biggest threat to Google is simply compromising its true business model of being a content distributor that is completely source-agnostic. In other words, the company needs to remember that its biggest asset is that we trust it to point us to the best content we want as quickly it can. Search results, sure. But the source-agnostic concept is key to all its businesses. At least it used to be…

Take for example, the news that Google’s looking to create a true Netflix competitor and it’s not YouTube centric. That’s good for Google for many reasons, mainly because one of the biggest mistakes Google’s ever made was when they got into the content ownership business at YouTube.

Granted, most of the “user-generated” video content is uploaded and/or copyrighted by other people/companies, but since Google bought both Blogger and YouTube, the company has been in the content “ownership” business de facto. That is, the company is incented to drive you to their content at YouTube and Blogger and I don’t know about you, but any time I see YouTube or Google Video come up on the first page of my Google search results, I’m skeptical that Google’s truly trying to help me find the very best content and not just trying to generate some revenues for their subsidiaries.

I wrote about this dynamic back in 2006 in my old monthly investment column in the Financial Times —

Those who empower, win. Those who protect, lose.

Believe it or not, that simple principle is all you need to know when it comes to investing in the trend to distribute the world’s information and entertainment content on the internet.

The key is to buy internet companies when they are working to empower their user base and to sell them soon after they shift to protecting their own interests. You have seen the scenario played out repeatedly since Netscape first ushered the internet revolution into the public markets more than a decade ago.

Netscape and America Online were clear examples of this dynamic in years past. Yahoo and eBay are properties that shareholders should already have sold. News Corporation and its social networking site MySpace have started working on the protection part of this “revolutionomics” principle. You can stick with Google and its still end-user empowering ways for the foreseeable future, but you will have to stay on top of its strategies and when it gets serious about protecting the company’s interests at the expense of its end users, it may be time to sell the stock.

Google TV is a step backward in the right direction for Google, as it becomes a pureplay distribution channel for any and all content that Google can license — and I’d expect over time to see Google TV license just about any and all the same content and much more video content inventory as the NetFlix’s and Hulu’s and any of the many, many other video content delivery platforms that will be coming to market in the next decade.

So too is Android, the smartphone operating system controlled by Google, a step backward in the right direction towards content distribution rather than content control. Google, for the most part, has created a pretty open platform that can distribute apps that can distribute content and those apps and content can be created by anybody. Google, in the Android model, mainly just wants to skim some revenues on ads that go into those apps and content.

Google’s getting back into the best possible businesses and will see big growth as long as it can continue to keep what trust of ours it does have. All that surfer tracking and travel-company content acquisition distraction notwithstanding, Google’s likely getting its ship back in high-growth and high-innovative mode.

Google is one of the companies in my report, 14 Stocks That Should Double in 2011 (visit http://Tradesfor2011.com to get the report for $39) and its also featured in my other recent report, 50 Stocks for the App Revolution (visit http://AppRevolutionStocks.com to get the report for $79), which includes a handful names I think can go up 500-1000% in coming years.

About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.